a

GAO

United States General Accounting Office

Report to the Committee on Government 

Reform, House of Representatives

August 2003 BUDGET ISSUES

Franchise Fund Pilot 

Review

GAO-03-1069
The six franchise fund pilots are part of a group of 34 intragovernmental 

revolving (IR) funds that were created to provide the common support 

services required by many federal agencies. In general, the legal authorities 

for these 34 funds are very similar. Twelve of the 34 funds—including 5 of 

the franchise fund pilots—have explicit authority to charge for an operating 

reserve and/or to retain a reserve for acquisition of capital equipment and 

financial management improvements. 

The franchise fund pilots at the Departments of Interior and Commerce have 

both (1) taken into account many of the 12 business operating principles, (2) 

designed their cost accounting processes to set fees to recover the full cost 

of operations, and (3) progressed toward implementing the main cost 

accounting standards. The Interior Franchise Fund’s (IFF) major business 

line, GovWorks, provides acquisition services and has seen dramatic growth 

in revenue and workload since fiscal year 1997. GovWorks expects 

continuing growth through fiscal year 2007. The IFF has been subject to an 

audit of its financial statements at the franchise fund level through fiscal 

year 2002. The Commerce Franchise Fund’s (CFF) only business line, Office 

of Computer Services (OCS), provides information technology infrastructure 

support services and has had a declining revenue and customer base. 

However, OCS expects its revenues to remain stable through fiscal year 

2005. The CFF was subject to financial audits at the franchise fund level for 

fiscal years 1997 and 1998, and at the department level for fiscal years 2001 

and 2002. No audits were conducted for fiscal years 1999 or 2000. 

Longer-term reauthorization (more than 1 or 2 years) would be helpful to the 

operation of franchise fund pilots, but neither their legal authority nor their 

operation makes franchise funds unique compared to other IR funds. A 

primary attraction to the franchise fund label is the explicit ability to retain 

reserves, and Congress could, and has, given this authority to other IR funds. 

The explicit authority provisions granted to franchise fund pilots (and a few 

other IR funds) could be considered case-by-case for individual IR funds. In 

deciding whether to provide these authorities to any individual fund, 

Congress could use the same criteria suggested by OMB for franchise fund 

pilots, including: (1) examining operations against OMB/CFO’s 12 business 

operating principles, (2) determining if managerial cost accounting 

processes are in place to account for the full unit costs of outputs produced, 

and (3) considering if annual or periodic independent audits are being 

conducted at the fund level to ensure the reliability of the fund’s financial 

information. Individual case-by-case authority would also permit Congress 

to consider and evaluate the agency’s commitment and the strength of the IR 

fund’s leadership, which are additional factors that can influence the success 

of the fund. 

Congress is considering the 

reauthorization of the six franchise 

fund pilots authorized by the 

Government Reform Act of 1994. 

These self-supporting business-like 

entities were established to provide 

common administrative services on 

a fully reimbursable basis. The 

authorization for most of the pilots 

will expire at the end of fiscal year 

2003. In addition to the suggestion 

of giving the pilots permanent 

authorization, there has been some 

discussion in recent years of 

expanding the franchise fund 

concept so that all departments 

and independent agencies can set 

up a franchise fund. To provide the 

context to evaluate franchise fund 

pilots and fully understand 

reauthorization issues, GAO agreed 

to identify the many funds, called 

intragovernmental revolving funds, 

that operate with purposes similar 

to that of franchise funds and to 

analyze their legal authorities to 

determine if franchise funds were 

somehow unique. In addition, we 

examined the operations and 

managerial cost accounting 

processes of the franchise fund 

pilots at the Departments of the 

Interior and Commerce. We 

determined if they had taken into 

account the criteria suggested by 

the Office of Management and 

Budget (OMB), including: (1) 

adhering to OMB/Chief Financial 

Officers (CFO) Council’s 12 

business operating principles, (2) 

accounting for full cost, and (3) 

conducting audits of financial 

statements at the fund level. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1069.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Susan J. Irving 

at (202) 512-9142 or irvings@gao.gov. 

Highlights of GAO-03-1069, a report to the 

Committee on Government Reform, 

House of Representatives 

August 2003

BUDGET ISSUES

Franchise Fund Pilot Review 
Page i GAO-03-1069 Franchise Fund Pilot Review

Contents

Letter 1

Results in Brief 2

Background 2

Intragovernmental Revolving Funds and Their Legal Authorities 4

Operations of the Franchise Fund Pilots at Interior and 

Commerce 5

Reauthorization Issues 5

Appendixes

Appendix I: Franchise Fund Pilot Review 8

Appendix II: 12 Business Operating Principles 49

Appendix III: Authority to Retain Unobligated Balances— Franchise Pilots 

and Comparable IR Funds 50

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Page ii GAO-03-1069 Franchise Fund Pilot Review
Page 1 GAO-03-1069 Franchise Fund Pilot Review

United States General Accounting Office

Washington, D.C. 20548

A

August 22, 2003 Letr

The Honorable Tom Davis

Chairman

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform

House of Representatives

In your January 9, 2003, letter you asked us to evaluate the franchise fund 

pilots authorized by the Government Management Reform Act of 1994 as 

you consider their reauthorization. To fully understand reauthorization 

issues, we agreed to (1) examine the universe of intragovernmental 

revolving (IR) funds1

 (of which franchise funds are a type) and their legal 

authorities and to determine how these authorities differ, (2) study the 

operations of selected franchise fund pilots, and (3) identify issues that 

Congress might consider as it contemplates permanent reauthorization of 

franchise funds. On July 11, 2003, we briefed committee staff on the results 

of our work. As agreed with your office, this letter summarizes and 

transmits the information provided in that briefing.

We used budget data to identify IR funds and reviewed the U.S. Code to 

analyze their legal authorities. We selected the franchise fund pilots at the 

Departments of the Interior and Commerce for case studies. We 

determined that GovWorks is the primary component of the Interior 

franchise fund (IFF) and that the Office of Computer Services (OCS) is the 

sole component of the Commerce franchise fund (CFF), and our case-study 

work focused on these two entities. We interviewed agency officials at the 

department and franchise fund levels, examined a variety of 

documentation, and did an in-depth review of the managerial cost 

accounting processes at the franchise fund level. During this review, we 

examined work done by other auditors and performed limited testing of 

data reliability but did not conduct audit procedures designed to render an 

opinion on the franchise funds’ financial information. We obtained 

comments from GovWorks and OCS on a draft of the report relevant to 

each and incorporated those comments, which were technical in nature, 

1

 An IR fund conducts continuing cycles of business-like activity within and between 

government agencies. It charges for the sale of products or services and uses the proceeds 

to finance its spending, usually without requirement for annual appropriations. 
Page 2 GAO-03-1069 Franchise Fund Pilot Review

where appropriate. Our work was conducted in Washington, D.C., from 

January through July 2003, in accordance with generally accepted 

government auditing standards. (See pages 12 to 14.)

Results in Brief Although longer-term authorization for franchise fund pilots would be 

helpful to the operation of the funds and their clients, neither their legal 

authority nor their operation makes franchise funds unique compared to 

other IR funds. A primary attraction to the franchise fund label is the 

explicit ability to retain 4 percent of total annual income, and Congress 

could, and has, given this authority to other IR funds. Since most large 

agencies already have at least one IR fund, allowing all departments and 

independent agencies to set up franchise funds is unnecessary. Instead, the 

explicit authority provisions granted to franchise fund pilots (and a few 

other IR funds) could be considered case-by-case for individual IR funds. In 

deciding whether to provide these authorities, Congress could use the 

same criteria suggested for franchise fund pilots, including: (1) examining 

operations against the 12 business operating principles established by the 

Office of Management and Budget (OMB) and the Chief Financial Officers 

(CFO) Council, (2) determining if managerial cost accounting processes 

are in place to account for the full unit costs of outputs produced, and (3) 

considering if annual or periodic independent audits are being conducted 

at the fund level to ensure the reliability of the fund’s financial information. 

Individual case-by-case authority would also permit Congress to consider 

and evaluate the agency’s commitment and the strength of the IR fund’s 

leadership, which are additional factors that can influence the success of 

the fund. (See pages 47 and 48.) 

Background Federal agencies are prohibited by law from transferring funds from one 

agency to another, unless otherwise authorized by law. The Economy Act 

of 1932 authorizes a federal agency to provide goods or services to another 

federal agency and generally provides authority for federal agencies to 

enter into intragovernmental transactions when no other, more specific, 

authority applies. However, the Economy Act restricts flexibility by 

requiring the client agency to deobligate fiscal year funds at the end of the 

period of availability to the extent that these funds have not been obligated 

by the performing agency. In contrast, where an interagency agreement is 

based on specific statutory authority other than the Economy Act, an 

agency is not required to deobligate funds at the end of the period of 

availability. The specific legal authorities creating IR funds authorize these 
Page 3 GAO-03-1069 Franchise Fund Pilot Review

funds to enter into intragovernmental transactions and provide more 

flexibility by allowing the client agency’s fiscal year funds to remain 

obligated, even after the end of the fiscal year, to pay the IR fund for the 

provision of services which meet a legitimate or bona fide need incurred 

during the period of availability of the customer agency’s appropriation.2,3

The Government Management Reform Act of 1994 authorized OMB to 

designate six franchise fund pilots. These pilots are a type of IR fund that 

were established as self-supporting business-like entities providing 

common administrative services on a fully reimbursable basis. Between 

May 1996 and January 1997, OMB designated pilots at the Departments of 

Commerce, Veterans Affairs (VA), Health and Human Services (HHS), the 

Interior, and the Treasury, and at the Environmental Protection Agency 

(EPA). As criteria for operation, OMB and the CFO Council defined 12 

business operating principles for the franchise fund pilots.4

 OMB also 

stressed the importance of accounting for full cost5 and suggested that 

agencies consider the usefulness of audited financial statements at the fund 

level. The six pilots provide a variety of common services, such as 

acquisition management, financial management services, and employee 

assistance programs. They are similar to other business-like entities such 

as the National Finance Center (NFC) at the Department of Agriculture and 

the Federal Systems Integration and Management Center (FEDSIM) at the 

General Services Administration (GSA). 

The pilots were originally to expire at the end of fiscal year 1999, but the 

date has been extended three times (the last two times on an annual basis). 

As of August 2003, authorization for most of the pilots will expire at the end 

of fiscal year 2003. The Treasury franchise fund is authorized through the 

end of fiscal year 2004 and the EPA pilot has permanent authorization. In 

2

 The use of a revolving fund does not change the period of availability of the customer 

agency’s appropriation. It is improper for a customer funded by fiscal year appropriations to 

place orders in excess of legitimate needs, thereby using the revolving fund to extend the 

life of the appropriation.

3

 This is only one of the differences between the Economy Act of 1932 and the legal 

authorities for IR funds, but it is the one most important for our discussion. Other 

differences are mentioned on page 15. 

4

 See appendix II for a list of the 12 business operating principles.

5

 The Statement of Federal Financial Accounting Standards (SFFAS) No. 4 sets forth basic 

cost accounting concepts and five main standards for managerial cost accounting by the 

federal government.
Page 4 GAO-03-1069 Franchise Fund Pilot Review

addition to suggestions of permanent authorization for the pilots, there has 

been some discussion in recent years of expanding the franchise fund 

concept governmentwide, that is, allowing all departments and 

independent agencies to set up franchise funds.

Intragovernmental 

Revolving Funds and 

Their Legal Authorities

We identified 58 IR funds with varying titles and purposes. Most IR funds 

function under the title or label “working capital fund.” Examples of other 

labels include revolving funds, supply funds, and franchise funds. Most 

large agencies have at least one IR fund, and many have more than one. For 

example, Interior has a franchise fund pilot and four working capital funds. 

Intragovernmental revolving funds were created for a variety of purposes, 

but most frequently, to provide the common support services required by 

many federal agencies. Examples include photocopying, payroll services, 

information technology services, and financial management services. We 

determined that 34 of the 58 IR funds provide common services, while the 

remaining 24 have very specific purposes of providing goods or services to 

satisfy needs unique to their agencies. (See pages 22 and 23.) 

The 34 IR funds that provide common services operate under similar legal 

authorities. These authorities generally specify the means of initial 

capitalization and allow both internal entities and external agencies to pay 

the IR funds for services provided, either by reimbursement or in advance 

(some are required to receive payments in advance). Intragovernmental 

revolving funds are generally required to charge rates for their services 

sufficient to recover all operational expenses, although over the long term 

they are not intended to earn more than is required to break-even. In fact, 

the legal authorities for IR funds commonly require the return of surplus 

amounts to the Treasury at the end of the fiscal year. However, some 

receipts may be carried over to the next fiscal year as unobligated 

balances, including amounts reserved to cover the costs of annual leave 

and depreciation. Some additional discretion to carry over unobligated 

balances is provided to 22 of the 34 IR funds. For example, the head of the 

agency is allowed to determine the level of funding required to meet the 

needs of 16 of the IR funds and 6 IR funds are not specifically required to 

return surpluses to the Treasury. This discretion does not mean that IR 

funds are allowed to operate with continuing surpluses; over the long term, 

they are still required to break-even. The remaining 12 of the 34 funds—

including 5 of the franchise fund pilots—have explicit authority to retain 

additional unobligated balances. By statute, the 12 funds are authorized to 

charge for an operating reserve and/or to retain a reserve for acquisition of 

capital equipment and financial management improvements. Five of the 
Page 5 GAO-03-1069 Franchise Fund Pilot Review

franchise fund pilots have explicit authority for both a “reasonable 

operating reserve” and “to retain up to 4 percent of total annual income for 

acquisition of capital equipment and financial management 

improvements.”6

 Appendix 3 shows the various authorities by fund. (See 

pages 24 through 27.) 

Operations of the 

Franchise Fund Pilots 

at Interior and 

Commerce

During our case studies at the Interior and Commerce franchise fund pilots, 

we found that both have (1) taken into account many of the 12 business 

operating principles, (2) designed their cost accounting processes to set 

fees to recover the full cost of operations, and (3) progressed toward 

implementing the five main cost accounting standards.7

 The IFF’s major 

business line, GovWorks, provides acquisition services and has seen 

dramatic growth in revenue and workload since fiscal year 1997. GovWorks 

projects continuing growth through fiscal year 2007. The IFF has been 

subject to an audit of its financial statements at the franchise fund level 

through fiscal year 2002. The CFF’s only business line, OCS, provides 

information technology infrastructure support services and has had a 

declining revenue and customer base. However, OCS expects its revenues 

to remain stable through fiscal year 2005. The CFF was subject to financial 

audits at the franchise fund level for fiscal years 1997 and 1998, and at the 

department level for fiscal years 2001 and 2002. No audits were conducted 

for fiscal years 1999 or 2000. (See pages 28 through 35 for the IFF and pages 

36 through 43 for the CFF.) 

Reauthorization Issues During the course of our work, we identified several reauthorization issues. 

Franchise fund managers cited the benefits of working under the franchise 

fund label and perceived the ability to retain 4 percent of total annual 

income as a benefit of a franchise fund. However, there is not a clear 

understanding of the relationship between the “4 percent retention” 

provision and the “operating reserve” provision. Clarification of the 

6

 The HHS franchise fund pilot operates under the statutory authority for the HHS service 

and supply fund, which is not required to return excess to the Treasury. There is no explicit 

authority specifying an operating reserve or the retention of up to 4 percent of annual 

income, although HHS franchise fund officials believe that they are allowed this authority 

according to Chief Financial Officers Council, Federal Franchise Pilots: Pilot Program 

Implementation Guide (Washington, D.C.: April 1996).

7

 The standards are set forth in SFFAS No. 4.
Page 6 GAO-03-1069 Franchise Fund Pilot Review

relationship between these two provisions could avoid different 

interpretations. (See pages 44 and 45.)

If franchise funds were to be reauthorized, longer term reauthorizations 

(i.e., more than 1 or 2 years) would be beneficial and might provide less 

uncertainty for current and potential clients than do annual 

reauthorizations. Franchise fund managers mentioned other changes that 

might be helpful. Although the ability to receive payment in advance is 

sometimes advantageous, the requirement for advance payment reduces 

the IR funds’ flexibility to work with some clients. One franchise fund 

manager said that additional human capital flexibilities, such as in hiring 

practices, might be beneficial. (See page 45.)

If the pilots were not reauthorized, many of the services provided would 

probably continue under other authorities. For example, both GovWorks 

and OCS operated under different authorities prior to becoming part of 

their respective franchise fund pilots. OCS officials told us that they would 

probably continue to operate under the authority of the working capital 

fund if the CFF pilot did not continue. GovWorks would seek authorization 

as a working capital fund so that it would not have to operate under the 

authority of the Economy Act. (See page 46.) 

As agreed with your office, unless you announce the contents of this report 

earlier, we plan no further distribution until 30 days from the date of this 

letter. At that time, we will provide copies of this report to other interested 

congressional committees and make copies available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov.

If you or your staff have any questions regarding the information in this 

report, please contact me at (202) 512-9142 or Christine Bonham, Assistant
Page 7 GAO-03-1069 Franchise Fund Pilot Review

Director, at (202) 512-9576. Key contributors to this review were Jennifer A. 

Ashford, Michael S. LaForge, Bill Wright, Hannah R. Laufe, Mark P. 

Connelly, and Elizabeth Lessman.

Susan J. Irving

Director, Federal Budget Analysis

Strategic Issues
Page 8 GAO-03-1069 Franchise Fund Pilot Review

Appendix I

Franchise Fund Pilot Review AAppenednxidexiIs

Franchise Fund Pilot Review

Briefing for Chairman Davis and Ranking 

Member Waxman

Committee on Government Reform

U.S. House of Representatives

July 11, 2003
Appendix I

Franchise Fund Pilot Review

Page 9 GAO-03-1069 Franchise Fund Pilot Review

Introduction

• The Government Management Reform Act (GMRA) of 1994 

authorized the Office of Management and Budget (OMB) to 

designate six franchise fund pilots:

– One of many types of intragovernmental revolving (IR) 

funds

– Self-supporting business-like entities providing common 

administrative services on a fully reimbursable basis 

– Compete for federal customers, both internal and external

– OMB designated the following six pilot agencies:

• Interior (May 17, 1996) 

• Treasury (May 17, 1996) 

• Commerce (May 20,1996)

• Environmental Protection Agency (EPA) (May 30, 1996) 

• Veterans Affairs (VA) (May 30, 1996) 

• Health and Human Services (HHS) (January 24, 1997)
Appendix I

Franchise Fund Pilot Review

Page 10 GAO-03-1069 Franchise Fund Pilot Review

Introduction

• Original expiration extended three times

• Current expiration at end of fiscal year 2003; Treasury 

franchise fund will expire at end of fiscal year 2004 

• Little literature is available regarding franchise fund pilots’ 

operations

• Expanding the franchise fund concept on a 

governmentwide basis has been discussed in recent years 

• In consideration of reauthorization, need to understand the 

universe of similar types of IR funds and the operation of 

the pilots
Appendix I

Franchise Fund Pilot Review

Page 11 GAO-03-1069 Franchise Fund Pilot Review

Key Questions

1. What types of intragovernmental revolving funds exist, 

under what authorities do they operate, and how do these 

authorities differ?

2. How have selected franchise funds operated?

3. What issues might Congress consider as it contemplates 

permanent reauthorization of franchise funds?
Appendix I

Franchise Fund Pilot Review

Page 12 GAO-03-1069 Franchise Fund Pilot Review

Scope and Methodology

• To identify IR funds and their legal authorities, we:

– Used budget data from OMB’s MAX budget database 

– Reviewed U.S. Code and fund information in the President’s 2004 Budget

• For background on franchise funds and their operations, we examined:

– 1997 and 1999 OMB/Chief Financial Officers (CFO) Council reports on 

franchise funds

– Legal and budget documents, GAO reports, agency documents

– Documentation from franchise fund websites and magazine articles

• For detailed information on operations, we selected Interior and

Commerce franchise funds for case studies based on size and activity:

– Interviewed agency officials at the department and franchise fund levels

– Examined original franchise fund applications, Inspector General reports, 

and other documentation on the history and operation of the funds

– Examined each against specific OMB/CFO Council operating principles 

and determined whether franchise funds had taken into account these 

principles
Appendix I

Franchise Fund Pilot Review

Page 13 GAO-03-1069 Franchise Fund Pilot Review

Scope and Methodology (cont.)

• We also examined in-depth the managerial cost accounting processes 

at:

– GovWorks, which makes up over 95 percent of all Interior 

franchise fund revenues as of October 1, 2002

– Office of Computer Services (OCS), currently the only business 

line within the Commerce franchise fund 

• By studying their cost accounting processes, we were able to:

– Gain an understanding of their financial operations 

– Review underlying methodologies for identifying, accumulating, 

and assigning costs to cost objects

– Trace sources for cost-related information in internal management 

reports to supporting systems and documentation

– Investigate anomalies or potential problems found in the design of 

the costing processes and discuss these issues with agency officials
Appendix I

Franchise Fund Pilot Review

Page 14 GAO-03-1069 Franchise Fund Pilot Review

Scope and Methodology (cont.)

• Reviewed work by other auditors and performed limited testing 

of data reliability, but did not conduct audit procedures designed 

to give an opinion on the franchise funds’ financial information

• Reauthorization issues were identified during our document 

reviews and interviews

• GovWorks and OCS have each reviewed the relevant slides; 

they provided technical comments which have been 

incorporated where appropriate

• Conducted our work between January and July 2003 in 

accordance with generally accepted government auditing 

standards
Appendix I

Franchise Fund Pilot Review

Page 15 GAO-03-1069 Franchise Fund Pilot Review

Background–Intragovernmental Revolving 

Funds

• The Economy Act of 1932 provides broad authority:

– Allows a federal agency to enter into an agreement to provide goods or 

services to another federal agency, and generally is the authority governing 

intragovernmental transactions when no other, more specific, authority applies

– Requires that payment from the client agency be based on the “actual cost of 

goods or service” provided

– Restricts flexibility by requiring client agency to deobligate fiscal year funds at 

end of period of availability to the extent unobligated by the performing entity

• In contrast, specific legal authorities creating IR funds at the agency level:1

– Describe the fund’s purpose and authorized uses 

– Detail the receipts or collections the agency may credit to the fund 

– Provides more flexibility by allowing client agency funds to remain obligated, 

even after the end of the fiscal year, to pay the performing IR fund

– Other authorities specific to the fund

1 There are other types of revolving funds that share common elements with IR funds, but they are not relevant to 

our discussion. IR funds are revolving funds whose receipts come primarily from other government accounts.
Appendix I

Franchise Fund Pilot Review

Page 16 GAO-03-1069 Franchise Fund Pilot Review

Background–Franchise Fund Pilots

• Franchise funds are a type of IR fund

• First conceptualized in the 1993 National Performance Review to 

establish fully self-supporting business-like entities within the federal 

government to compete in the market to provide federal common 

administrative support services

• GAO reported and testified on the franchise concept in early 19942

and questioned whether governmentwide legislation was necessary 

since the concept so closely resembled existing IR funds

• GMRA 1994 authorized OMB to designate six franchise fund pilots

• OMB chose pilots through an application process 

• Legal authorities for pilots: 

– Five of the six pilots received authority in respective agency’s 

appropriations bill (all but HHS)

– HHS pilot operates under authority of the HHS service and supply fund 

– EPA franchise pilot established as a “working capital fund” and law was

amended so fund has no expiration date

2 See U.S. General Accounting Office reports Improving Government: GAO’s Views on H.R. 3400 Management Initiatives, 

GAO/T-AIMD/GGD-94-97 (Washington, D.C.: Feb. 23, 1994) and Working Capital Funds: Three Agency Perspectives, 

GAO/AIMD-94-121 (Washington, D.C.: May 20, 1994).
Appendix I

Franchise Fund Pilot Review

Page 17 GAO-03-1069 Franchise Fund Pilot Review

Background–Franchise Fund Pilots (cont.)

• Pilots did not begin to operate until fiscal year 1997

• OMB and the CFO Council defined 12 operating principles for 

business-like operations in a 1996 guide for franchise fund pilots:3

• In addition to emphasizing these 12 principles, OMB has stressed

the importance of accounting for full cost and suggested that 

agencies consider the usefulness of audited financial statements at 

the fund level

• Statement of Federal Financial Accounting Standards (SFFAS) No. 

4 sets forth basic cost accounting concepts and five main standards 

for managerial cost accounting by the federal government

3 See appendix 2 for description of principles.

1. Services 7. Adjustments to Business Dynamics 

2. Organization 8. Surge Capacity 

3. Competition 9. Cessation of Activity 

4. Self-sustaining/Full Cost Recovery 10. Voluntary Exit 

5. Performance Measures 11. FTE Accountability* 

6. Benchmarks 12. Initial Capitalization* 

* We did not examine these principles in our case study of the Interior and Commerce Franchise Funds
Appendix I

Franchise Fund Pilot Review

Page 18 GAO-03-1069 Franchise Fund Pilot Review

Background–Franchise Fund Pilots (cont.)

• Franchise fund pilots provide common administrative services such as:

• Franchise fund pilots are often discussed in the literature with other 

recognized business-like entities such as: 

– Agriculture’s National Finance Center (NFC)

– Central Intelligence Agency’s (CIA) central services working capital 

fund (WCF)

– General Services Administration’s (GSA) Federal Systems Integration 

and Management Center (FEDSIM)

– Cooperative administrative support units (CASUs)

– Facilities management – Clinical occupational health

– Records management – Employee assistance programs

– Information technology services – Financial management services 

– Acquisition management – Administrative management
Appendix I

Franchise Fund Pilot Review

Page 19 GAO-03-1069 Franchise Fund Pilot Review

Results in Brief

• Identified 58 IR funds with varying labels and purposes: 

– Determined that 34 IR funds (including 6 franchise fund pilots) are 

authorized to provide common services required by many federal 

agencies; 24 IR funds have more specific purposes

– In addition to the 58 IR funds, we identified cooperative 

administrative support units, another type of government entity that 

provides common services

• 34 intragovernmental revolving funds that provide common services

operate under similar legal authorities:

– For example, most authorize advances and reimbursements, as well

as the carryover of unobligated balances to recover the costs of 

accrued leave and depreciation

– Some, but not all, have authority explicitly allowing 1) an operating 

reserve and/or 2) retention of up to 4 percent of total annual income 

for capital equipment/financial management improvements
Appendix I

Franchise Fund Pilot Review

Page 20 GAO-03-1069 Franchise Fund Pilot Review

Results in Brief (cont.)

• Interior and Commerce franchise fund pilots have:

– Taken into account many of the business operating principles 

– Designed their cost accounting processes to set fees to recover the full cost 

of operations

– Made progress toward implementing the five main cost accounting 

standards set forth in SFFAS No. 4 

– Had financial statement audits performed at different levels

• Interior franchise fund’s (IFF) major business line, GovWorks:

– Provides acquisition services 

– Has seen dramatic growth in revenue and workload since fiscal year 1997 

and projected through fiscal year 2007

• Commerce franchise fund’s (CFF) business line, OCS:

– Provides information technology (IT) infrastructure support services

– Has had a declining revenue and customer base, but OCS expects 

revenues to remain stable through fiscal year 2005
Appendix I

Franchise Fund Pilot Review

Page 21 GAO-03-1069 Franchise Fund Pilot Review

Results in Brief (cont.)

• We identified several reauthorization issues:

– Franchise fund managers cited benefits of working under the 

franchise fund label

– Ability to retain 4 percent of total annual income is generally 

perceived as a benefit of a franchise fund

– If reauthorized, longer-term authorization for selected franchise 

fund pilots would be beneficial 

– If not reauthorized, many services being provided under franchise 

funds probably would continue under other authorities

– Franchise funds are not unique from other IR funds in their legal 

authority or operation

– Expanding franchise funds governmentwide is not necessary since 

funds are individually authorized and may receive expanded 

authorities from Congress
Appendix I

Franchise Fund Pilot Review

Page 22 GAO-03-1069 Franchise Fund Pilot Review

58 intragovernmental revolving funds have varying 

labels and purposes

• IR funds exist under a variety of labels, with “working capital fund” 

being the most common: 

• Most large agencies have at least one IR fund, and many have more 

than one, for example:

– Department of Interior has a franchise fund pilot and 4 working 

capital funds 

– Department of Commerce has a franchise fund pilot and 3 working 

capital funds 4 As discussed, the EPA franchise fund is labeled a “working capital fund” and the HHS pilot operates under its “service and supply fund.” On 

the other hand, the Federal Aviation Administration (FAA) has a fund that it labels a “franchise fund.” It is not part of the franchise fund pilot 

program although it operates under similar authority.

– 5 franchise funds – 13 “other” funds 4

– 6 revolving funds – 3 building funds

– 28 working capital funds – 3 supply funds
Appendix I

Franchise Fund Pilot Review

Page 23 GAO-03-1069 Franchise Fund Pilot Review

58 intragovernmental revolving funds have varying 

labels and purposes (cont.)

• IR funds were created for a variety of purposes, most frequently to 

provide common services:

– 34 IR funds, including 6 franchise fund pilots, are authorized to provide 

common services required by many federal agencies

– 24 provide goods or services that are not commonly required 

• In addition to the IR funds, there are entities called cooperative 

administrative support units (CASUs):

– CASUs are entrepreneurial organizations that provide the full range of 

support services to federal agencies on a cost reimbursable basis

– Have provided services since 1986 in those regions of the country with 

intense federal government activity

– CASUs generally derive their authority to enter into agreements with other 

federal entities from the Economy Act

– Several CASUs have moved to operate under the authority of a franchise 

fund to make use of provisions more expansive than those of the Economy 

Act
Appendix I

Franchise Fund Pilot Review

Page 24 GAO-03-1069 Franchise Fund Pilot Review

Funds that perform common services operate under 

similar legal authorities

• The legal authorities for the 34 IR funds that provide common 

services generally specify:

– The means of initial capitalization 

– That funds may be received from clients external to the 

agency, i.e., “other government/federal agencies” or “other 

sources”

– That both payment in advance and payment by 

reimbursement are allowed; some funds require advance 

payment and do not permit reimbursement

– That rates should be set to recover all operational expenses; 

authority most frequently stipulates the inclusion of annual 

leave and depreciation as part of expenses to be recovered
Appendix I

Franchise Fund Pilot Review

Page 25 GAO-03-1069 Franchise Fund Pilot Review

Funds that perform common services operate under 

similar legal authorities (cont.)

• Receipts earned in a fiscal year, i.e., offsetting collections, are a 

result of the rates charged for services provided

• Most revolving funds are intended to operate on a break-even 

basis over the long term

• Statutes frequently include the requirement for the periodic 

payment of any surplus amounts to the general fund of the 

Treasury at the end of the fiscal year

• However, not all unspent receipts are considered surplus, some 

are carried over as unobligated balances, including amounts 

reserved to recover the costs of accrued leave and depreciation
Appendix I

Franchise Fund Pilot Review

Page 26 GAO-03-1069 Franchise Fund Pilot Review

Funds that perform common services operate under 

similar legal authorities (cont.)

• 22 of 34 IR funds that provide common services have some 

additional discretion in determining unobligated balances that 

may be retained (see appendix 3):

– 16 allow the head of the agency to determine what level of 

funding meets the needs of the fund 

– 6 do not specifically stipulate the return of surpluses to 

Treasury

– While some funds have the discretion described above, GAO 

has stated that operating with deficits or surpluses 

continuously for periods of several years is not consistent 

with the funds’ statutory objective of operating on a breakeven basis over the long term5

5 See U.S. General Accounting Office, OPM's Revolving Fund Policy Should Be Clarified and Management Controls Strengthened, 

GAO/GGD-84-23 (Washington, D.C.: Oct. 13, 1983).
Appendix I

Franchise Fund Pilot Review

Page 27 GAO-03-1069 Franchise Fund Pilot Review

Funds that perform common services operate under 

similar legal authorities (cont.)

• Several funds were given explicit authority to accumulate 

reserves (see appendix 3):

– 8 IR funds, including 5 of the franchise fund pilots, have the 

authority to charge for “a reasonable operating reserve” 

– 8 IR funds, including 5 of the franchise funds pilots, have 

authority to retain “up to 4 percent of total annual income for 

acquisition of capital equipment and financial management 

improvements”

– Labor, Justice, and the National Archives and Records 

Administration have other explicit language allowing 

reserves for specified purposes 
Appendix I

Franchise Fund Pilot Review

Page 28 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund

Organizational history:

• Began operating in October 1996

• Two primary components, Minerals Management Service (MMS) and 

National Business Center (NBC)

• MMS contained GovWorks, two CASUs, and U.S. Films & Video; all 

existed prior to the creation of the franchise fund

• NBC included a few of its services under the franchise fund, most 

stayed under the working capital fund

• In 2001, CASUs left IFF to go to the Treasury franchise fund 

• In October 2002, those NBC services under the franchise fund were 

moved to the working capital fund

• GovWorks accounted for over 95 percent of all IFF revenues as of

October 1, 2002, and is currently the primary business line under the 

franchise fund

• Through fiscal year 2002, IFF subject to an audit of its financial 

statements at the fund level
Appendix I

Franchise Fund Pilot Review

Page 29 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles

Principle 1: Services–provide only common administrative support 

services

• GovWorks:

– Provides acquisition services

– OMB defines procurement as inherently governmental in nature 

– Some clients do not have a procurement office; others choose to 

use GovWorks rather than their own procurement office

– Supports project from contract initiation to contract close-out and 

helps client choose appropriate vendor to perform work

Principle 2: Organization–clearly defined organizational structure

• GovWorks:

– Separate organizational coding structure in general ledger 

accounting system for transactions
Appendix I

Franchise Fund Pilot Review

Page 30 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles (cont.)

Principle 3: Competition–not sheltered or a monopoly

• GovWorks:

– Accounts for and pays MMS for support services

– Pays the Department of the Interior for an allocation of 

departmental overhead

– In fiscal year 2002, received 95 percent of revenue from customers 

external to Interior and 5 percent of revenue from customers within 

Interior

– Has competitors who also offer procurement services
Appendix I

Franchise Fund Pilot Review

Page 31 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles (cont.)

Principle 4: Self-sustaining/Full Cost Recovery–fees established to 

recover full cost

• GovWorks:

– Management reports and financial statements indicate the 

collection of revenues in excess of what would normally be 

considered full costs, as permitted by law

– Design of the managerial costing processes identifies full (direct 

and indirect) costs of operations

– Service fees are set at a fixed percentage of contract amounts in 

order to recover the full cost of operations, including support 

services provided by MMS and overhead allocated by the 

Department of the Interior; however, 

– Has not regularly calculated the unit costs of outputs, i.e., actual 

unit cost per contract dollar awarded, which could be useful as a 

measure of performance
Appendix I

Franchise Fund Pilot Review

Page 32 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles (cont.)

Principle 5: Performance Measures–should have comprehensive 

performance measures to assess services

• GovWorks:

– Prepares trend analysis on revenues and expenses in addition to 

total number and dollar amount of awards and funding documents

– Hired KPMG Consulting to conduct customer survey; June 2000 

report assessed clients’ opinions on satisfaction with services, 

marketing strategies, interest in potential future service offerings

Principle 6: Benchmarks–cost and performance measures against 

competitors

• GovWorks:

– Has cost and performance data that could be compared to 

competitors, but GovWorks staff said that information is not 

available from entities with similar functions
Appendix I

Franchise Fund Pilot Review

Page 33 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles (cont.)

Principle 7: Adjustments to Business Dynamics–ability to adjust 

capacity and resources up and down

• GovWorks:

– Experienced dramatic growth in revenue and workload since 

fiscal year 1997 and projected through fiscal year 2007

– Actively marketing in print and electronic media using the 

“GovWorks” brand name in its franchise awareness program

– Has hired new staff to meet increasing workloads and has 

developed training

– Reviewing core business processes and documenting procedures 

to facilitate consistent delivery of services
Appendix I

Franchise Fund Pilot Review

Page 34 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles (cont.)

Principle 8: Surge Capacity–resources to provide for peak business periods, 

capital investments, and new starts

• GovWorks:

– Legal requirement for advance payments allows cash flow for hiring of 

additional employees as needed 

– Flexibility limited by constraints on using private contractors to 

perform inherently governmental acquisition management

– Combined reserve balance as of June 2003 is about $6.3 million 

– Desired “operating reserve” would total $16 million, and would include 

funds intended to:

• Pay for ordinary/necessary operating costs that may be incurred

• Offset any future short-term operating losses

• Replace existing capital equipment/software

• Pay employees’ annual leave earned since business line inception

• Cover costs of shutting-down business line (if ever necessary)

– Desired “reserve for improvements” would total $3 million, and would 

include funds intended for improvements in the financial, procurement, 

and business management systems 
Appendix I

Franchise Fund Pilot Review

Page 35 GAO-03-1069 Franchise Fund Pilot Review

Interior Franchise Fund: Implementation of Business 

Principles (cont.)

Principle 9: Cessation of Activity–reasonable notice to customer before 

eliminating service

• GovWorks:

– No elimination of service has occurred; clients reportedly not affected by 

movement of NBC services to working capital fund

– Franchise fund management has the freedom to not enter into additional 

contracts with clients 

– Operating reserve includes funds intended to cover 1 year of costs to 

perform shut-down if service is eliminated 

– Believes that if the franchise fund was not reauthorized, it could continue 

successful operations if it were authorized as a working capital fund; 

would not want to operate under the authority of the Economy Act

Principle 10: Voluntary Exit–customers should be able to exit

• GovWorks:

– Procurement contracts are discrete, customers can leave at contract’s end

– Has many return clients but does not document whether all customers 

return
Appendix I

Franchise Fund Pilot Review

Page 36 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund

Organizational History

• Began operating in October 1996

• Two primary business components, OCS and National Oceanic and 

Atmospheric Administration’s (NOAA) Administrative Service 

Centers (ASC)

• Both existed prior to creation of the franchise fund 

• NOAA’s ASCs left franchise fund in 1998

• Department requested adding another business line in 2001, but OMB 

did not authorize it

• Currently, OCS is the only business line in the franchise fund

• OCS was subject to financial audits at the fund level for fiscal years 

1997 and 1998, and at the department level for fiscal years 2001 and 

2002 (no audits for fiscal years 1999 or 2000)
Appendix I

Franchise Fund Pilot Review

Page 37 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles

Principle 1: Services–provide only common administrative support 

services

• OCS:

– Provides information technology infrastructure support services

– Uses subcontractors to provide some services such as disaster data 

recovery, computer maintenance, and technical support

Principle 2: Organization–clearly defined organizational structure

• OCS:

– Separate organizational coding structure in general ledger 

accounting system for transactions

– Is the only business line in the franchise fund and its internal

management reports clearly lay out its revenues and types of costs
Appendix I

Franchise Fund Pilot Review

Page 38 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles (cont.)

Principle 3: Competition–not sheltered or a monopoly

• OCS:

– Accounts for and pays for its own support costs

– Pays the Department of Commerce for an allocation of 

departmental overhead

– In fiscal year 2002, received 57 percent of revenue from customers 

external to Commerce and 43 percent of revenue from customers 

within Commerce

– Has competitors who also offer information technology support 

services
Appendix I

Franchise Fund Pilot Review

Page 39 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles (cont.)

Principle 4: Self-sustaining/Full Cost Recovery–fees established to 

recover full cost

• OCS:

– Management reports and financial statements indicate the 

collection of total revenues in excess of what would normally be

considered full costs, as permitted by law

– Design of the managerial costing processes identifies full costs

(direct and indirect costs) of operations

– Activity-based pricing model is used to estimate future costs to be 

recovered and fees for each output are set at a level that is expected 

to recover full costs; however,

– Has not calculated the actual unit costs of outputs to determine if 

fees are sufficient to recover full costs for each type of output, 

which could be useful as a measure of performance
Appendix I

Franchise Fund Pilot Review

Page 40 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles (cont.)

Principle 5: Performance Measures–should have comprehensive 

performance measures to assess services

• OCS:

– Prepares trend analysis on number and types of customers and 

related revenues

– Positive feedback from customers but has not used a formal 

mechanism to evaluate its performance

Principle 6: Benchmarks–cost and performance measures against 

competitors

• OCS:

– Has developed cost-based fees for units of output delivered to 

customers that could be compared against those of competitors, but 

OCS staff stated that competitors’ fees for similar units of output 

are difficult to obtain
Appendix I

Franchise Fund Pilot Review

Page 41 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles (cont.)

Principle 7: Adjustments to Business Dynamics–ability to adjust 

capacity and resources up and down

• OCS:

– Has had recent declines in number of customers and revenues, but

OCS expects revenues to remain stable through fiscal year 2005

– In fiscal year 2002, INS accounted for 77 percent of external 

revenue and 44 percent of total revenue

– Not focused on actively marketing; management relies on satisfied 

customers and referrals to find new customers that can be served

with existing systems 

– Has subcontractors available to meet short-term requirements and 

to avoid carrying excess capacity

– Computer processors sometimes operate near capacity but 

processors could be added to serve additional customers
Appendix I

Franchise Fund Pilot Review

Page 42 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles (cont.)

Principle 8: Surge Capacity–resources to provide for peak business 

periods, capital investments, and new starts

• OCS:

– Received authority to retain up to 4 percent of total annual income 

for capital/improvements starting in fiscal year 1999

– Reserve balance at end of fiscal year 2002 is approximately 

$500,000, or about 1 percent of total revenues earned since 

receiving retained earnings authority 

– Currently developing a capital plan
Appendix I

Franchise Fund Pilot Review

Page 43 GAO-03-1069 Franchise Fund Pilot Review

Commerce Franchise Fund: Implementation of 

Business Principles (cont.)

Principle 9: Cessation of Activity–reasonable notice to customer before 

eliminating service

• OCS:

– Has never eliminated a service unless requested by the client

– Service agreements allow either party to terminate the agreement, 

usually with 120 days advance notification

– Would probably return to the Department of Commerce working 

capital fund if it were not reauthorized as a franchise fund (as such, 

would not have the explicit authority to retain 4 percent of total 

annual income for capital/improvements)

Principle 10: Voluntary Exit–customers should be able to exit 

• OCS:

– Has had several clients leave when client IT applications were no 

longer supportable; the clients chose new applications and new IT 

support providers
Appendix I

Franchise Fund Pilot Review

Page 44 GAO-03-1069 Franchise Fund Pilot Review

Reauthorization Issues

• Managers cited benefits of working under the franchise fund label:

– Believe it energized operations and provided opportunities for growth 

– CASUs have joined franchise funds to make use of provisions more

expansive than those of the Economy Act

• Ability to retain 4 percent of total annual income generally perceived 

as a benefit of a franchise fund, although our discussions with 

franchise fund managers and others have raised several considerations:

– There is not a clear understanding of the provision allowing the 4 percent 

retention of total annual income, although many interpret it as a reserve 

for capital/improvements and therefore maintain a separate operating 

reserve

– The need for capital reserves depends on the amount of capital assets used 

in providing services 

– There is evidence that franchise fund pilots have not been able to retain 4 

percent of total annual income and indications that charging rates that 

would allow a 4 percent reserve might make their prices uncompetitive
Appendix I

Franchise Fund Pilot Review

Page 45 GAO-03-1069 Franchise Fund Pilot Review

Reauthorization Issues (cont.)

• If reauthorized, longer-term authorization for selected franchise fund 

pilots would be beneficial:

– Annual reauthorizations create unease for current and potential clients 

concerned with stability

– Adding new business lines unlikely until future operations are more 

certain

• If reauthorized, additional changes might be helpful for agencies:

– Clarification of relationship between reserve of “4 percent of total annual 

income” for capital/improvements and operating reserve could avoid 

differing interpretations

– Ability to receive advances helpful, but requirement for advance payment 

reduces flexibility to work with some clients

– Additional human capital flexibilities, such as in hiring practices, might be 

helpful, according to one franchise fund manager
Appendix I

Franchise Fund Pilot Review

Page 46 GAO-03-1069 Franchise Fund Pilot Review

Reauthorization Issues (cont.)

• If not reauthorized, many services being provided under franchise 

funds probably would continue under other authorities:

– All the business lines we examined were in existence before becoming 

part of the franchise fund

– Several business lines have left the franchise funds and continue to 

provide services

– OCS would probably return to the existing working capital fund

– GovWorks would want authorization to be a working capital fund

• Proposed revisions to OMB’s Circular A-76 regulations would have 

affected IR funds, but final version does not:

– A-76 provides rules for competition of commercial activities, including 

many of the common services provided by IR funds

– November 2002 proposed revisions would have required customer 

agencies to compete their “contracts”(i.e., inter-service support 

agreements) over $1 million 

– Final version issued May 29, 2003, omitted this provision
Appendix I

Franchise Fund Pilot Review

Page 47 GAO-03-1069 Franchise Fund Pilot Review

Concluding Observations

• Longer-term authorization for selected pilot funds would be 

helpful to the operation of the funds and their clients 

• Nonetheless, neither the legal authority nor the operation of 

franchise funds makes them unique from other IR funds

• The “attraction” to the franchise fund label seems to be the 

explicit ability to retain 4 percent of total annual incomeneed legal authority but not franchise label to do that

• For any IR fund, agencies may request additional legal 

authorities, and Congress may expand those authorities if it 

wishes to do so (and has done so in the past) 

• A governmentwide authorization is not necessary 
Appendix I

Franchise Fund Pilot Review

Page 48 GAO-03-1069 Franchise Fund Pilot Review

Concluding Observations (cont.)

• In considering the provision of franchise-type authorities to 

individual IR funds, criteria include:

1. Operations should adhere to OMB’s 12 business principles 

2. Managerial cost accounting process should be in place that 

can account for the full unit costs of outputs produced 

3. Annual or periodic independent audit should be considered 

at the fund level to ensure the reliability of the fund’s 

financial information 

4. Additional elements to consider:

– Top level commitment at agency

– Strong leadership at the fund level

– Well-developed business-like operating philosophy

– Commitment of staff to customer service
Page 49 GAO-03-1069 Franchise Fund Pilot Review

Appendix II

12 Business Operating Principles ApendxiI

Source: OMB and the CFO Council

a

We did not examine these principles in our case study of the Interior and Commerce franchise fund 

pilots.

Operating Principle OMB Description 

1) Services The enterprise should only provide common administrative support services.

2) Organization The organization would have a clearly defined organizational structure including readily 

identifiable delineation of responsibilities and functions and separately identifiable units for the 

purpose of accumulating and reporting revenues and costs. The funds of the organization must 

be separate and identifiable and not commingled with another organization.

3) Competition The provision of services should be on a fully competitive basis. The organization’s operation 

should not be “sheltered” or be a monopoly.

4) Self-sustaining/ 

Full Cost Recovery

The operation should be self-sustaining. Fees will be established to recover the “full costs,” as 

defined by standards issued in accordance with FASAB (the Federal Accounting Standards 

Advisory Board).

5) Performance Measures The organization must have a comprehensive set of performance measures to assess each 

service that is being offered.

6) Benchmarks Cost and performance benchmarks against other “competitors” are maintained and evaluated.

7) Adjustments to Business

Dynamics

The ability to adjust capacity and resources up or down as business rises or falls, or as other 

conditions dictate, if necessary.

8) Surge Capacity Resources to provide for “surge” capacity and peak business periods, capital investments, and 

new starts should be available.

9) Cessation of Activity The organization should specify that prior to curtailing or eliminating a service, the provider will 

give notice within a reasonable and mutually agreed time frame so the customer may obtain 

services elsewhere. Notice will also be given within a reasonable and mutually agreeable 

timeframe to the provider when the customer elects to obtain services elsewhere.

10) Voluntary Exit Customers should be able to “exit” and go elsewhere for services after appropriate notification 

to the service provider and be permitted to choose other providers to obtain needed service.

11) FTE Accountabilitya Full Time Equivalents (FTEs) would be accounted for in a manner consistent with the Federal 

Workforce Restructuring Act and OMB requirements, such as Circular A-11. 

12) Initial Capitalizationa Capitalization of franchises, administrative service, or other cross-servicing operations should 

include the appropriate FTE commensurate with the level of effort the operation has committed 

to perform.
Page 50 GAO-03-1069 Franchise Fund Pilot Review

Appendix III

Authority to Retain Unobligated Balances— 

Franchise Pilots and Comparable IR Funds ApendxiI

Department/ 

agency Fund name/bureau

Secretarial 

discretion to 

retain 

unobligated 

balancesa

Explicit 

authority to 

retain 

operating 

reserve

Explicit authority 

to retain up to 4% 

of total annual 

income 

 Other 

explicit 

authority to 

retain 

balances

1 Commerce Franchise fund, Departmental 

Management 

X X

2 Interior Franchise fund, Minerals 

Management Service

X X

3 Treasury Franchise fund, Departmental 

Offices

X X

4 VA Franchise fund, Departmental 

Administration 

X X

5 EPA Working capital fund (WCF) X X

6 Transportation Administrative services franchise 

fund, FAA 

X X

7 Commerce WCF, Census X

8 Homeland Security WCF, Departmental Management X

9 Justice WCF, General Administration X X

10 CIA Central services WCF X

11 Labor WCF, Departmental Management X

12 National Archives 

and Records 

Administration

Records center revolving fund X

13 Agriculture WCF, Executive Operations X

14 Commerce WCF, Departmental Management X

15 Commerce WCF, National Institute of 

Standards and Technology 

X

16 Defense—Military Buildings maintenance fund X

17 Energy WCF, Departmental Administration X

18 HHSb HHS service and supply fund, 

Program Support Center

X

19 Housing and Urban 

Development 

WCF, Management and 

Administration

X

20 State WCF, Administration of Foreign 

Affairs 

X

21 Interior WCF, Bureau of Reclamation X

22 Interior WCF, Departmental Management X

23 Interior WCF, United States Geological 

Survey 

X

24 Treasury WCF, Departmental Offices X
Appendix III

Authority to Retain Unobligated Balances— 

Franchise Pilots and Comparable IR Funds

Page 51 GAO-03-1069 Franchise Fund Pilot Review

Source: GAO analysis

Note: Shading highlights franchise fund pilots.

a

Most of these funds are required to deposit in miscelleneous receipts of the Treasury amounts in 

excess of the needs fo the fund; however, in some cases this requirement is not specifically stipulated. 

b

The HHS franchise fund pilot operates under the statutory authority for the HHS Service and Supply 

Fund, which is not required to return excess to the Treasury. There is no explicit authority specifying an 

operating reserve or the retention of up to 4 percent of total annual income, although HHS franchise 

fund officials believe that they are allowed this authority according to Chief Financial Officers Council, 

Federal Franchise Pilots: Pilot Program Implementation Guide (Washington, D.C.: April 1996).

25 Transportation Transportation Administrative 

Service Center, Office of the 

Secretary

X

26 VA Supply fund, Departmental 

Administration 

X

27 Equal Employment 

Opportunity 

Commission 

Education, technical assistance 

and training revolving fund

X

28 GSA WCF, General Activities X

29 GSA Federal buildings fund, Real 

Property Activities 

X

30 GSA General supply fund, Supply and 

Technology Activities 

X

31 GSA Information technology fund 

(FEDSIM), Supply and Technology 

Activities

X

32 International 

Assistance 

Programs 

WCF, Agency for International 

Development 

X

33 Legislative Branch Fedlink program and Federal 

research program, Library of 

Congress 

X

34 Office of Personnel 

Management 

Revolving fund X

Total 22 8 8 3

(Continued From Previous Page)

Department/ 

agency Fund name/bureau

Secretarial 

discretion to 

retain 

unobligated 

balancesa

Explicit 

authority to 

retain 

operating 

reserve

Explicit authority 

to retain up to 4% 

of total annual 

income 

 Other 

explicit 

authority to 

retain 

balances

(450182)
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